Airline Fuel Surcharges Are Going Away in Japan as Long as Oil Stays Low

Chris Cooper and Kiyotaka Matsuda, Bloomberg

- Jan 18, 2016 6:53 am

Skift Take

We dream of a day when the true cost of flying is not made opaque by multiple fees designed to sow confusion and avoid taxes.

— Jason Clampet

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Japan’s airlines are set to remove fuel surcharges with oil trading around a 12-year low, ending a decade of high jet kerosene costs that had added as much as 66,000 yen ($563) to the price of a round-trip ticket to the U.S. or Europe.

The current price of Singapore kerosene is below the minimum level for adding surcharges, Hiroshi Hasegawa and Osuke Itazaki, analysts in Tokyo at SMBC Nikko Securities Inc., wrote in a Jan. 15 report. Singapore kerosene was at $35.39 as of 3:02 p.m. Monday.

Airlines are cutting fuel surcharges as oil prices slump amid China’s economic slowdown and an expected bump in supply as Iran sanctions are lifted. The surge in prices since 2004 had made fuel the single largest cost for airlines.

“With Singapore kerosene prices breaking significantly below the lower bound of the fuel surcharge table, we think airlines could enjoy major earnings advantages if fuel prices remain at current levels,” Hasegawa and Itazaki wrote in the report.

Kerosene Threshold

ANA Holdings Inc., which operates Japan’s largest airline, says on its website that if the two-month average of Singapore kerosene-type jet fuel falls below 6,000 yen for flights originating from Japan, or below $60 for flights originating elsewhere, then it won’t collect a fuel surcharge. Japan Airlines Co. sets the same limits, according to its website.

Maho Ito, a spokeswoman for ANA, said the carrier will announce any changes to its fuel surcharges around the middle of next month, to take effect from April, she said by telephone in Tokyo. She declined to say if the carrier would indeed eliminate surcharges. Japan Airlines is reviewing the surcharges, Takuya Shimoguchi, a spokesman for the carrier, said by telephone in Tokyo.

The carriers introduced fuel surcharges in February 2005 amid surging oil prices, which eventually peaked at $145.45 in 2008. West Texas Intermediate oil slumped to $28.36 a barrel Monday, its lowest level since 2003.

Playing Catch-up

If Japanese airlines do remove surcharges, they would merely be catching up with some of their counterparts elsewhere. South Korean airlines haven’t levied fuel surcharges on overseas flights since last September, under a government-set formula that’s adjusted every month to reflect international crude prices.

Budget carrier AirAsia Bhd., AirAsia X Bhd. and all their affiliates removed fuel surcharges last January. Qantas Airways Ltd. began folding the surcharge into its base ticket price a year ago, adding that its international fares wouldn’t change as a result.

In an e-mailed statement Monday, Singapore Airlines Ltd. said it regularly reviews its fuel surcharge levels, “and whenever changes are decided upon we announce them to the market.” Singapore Air and its regional unit SilkAir loweredtheir fuel surcharges in February 2015.